1. Pandit Swan Inc. (a major weapons manufacturer) has a capital structure with $10 billion in equity and $6 billion in debt. Its tax rate is .30; its levered beta is 1.5; the riskless rate is .02 and the expected equity risk premium is .06

What is its unlevered beta?

1

0

1.06

1.5

2. The equation that describes the relationship between its levered beta and debt-equity ratio is

L = 1+0.8 B/S

L = 1.5+1.05 B/S

L = 1.06+0.74 B/S

L = 1.36+0.95 B/S

3. What is the cost of equity for a firm in this industry that has no debt.

10.00%

9.00%

8.00%

8.36%

8.75%

4. What is the levered beta for a firm in this industry that has a capital structure with equal parts debt and equity?

1.70

1.80

1.50

1.60

1.90

5. What is the cost of equity for a firm in this industry that has a capital structure with equal parts debt and equity?

14.20%

12.80%

13.80%

12.20%